location factor institutional factor. what is institutional factor? external forces to influence the...

Location factorLocation factor

Institutional factor

What is institutional factor?What is institutional factor?

• External forces to influence the location of industries

• Government intervention in terms of incentives or penalties

• Both central and local governments can exert influence

• Both free and planned economy

Why does the government intervene?Why does the government intervene?

Strategic reasonsStrategic reasons

• To avoid attack of industries during wartime, e.g USA and China

• To encourage the development of military industries, e.g. munitions and aircrafts manufacturing

Political reasonsPolitical reasons

• To maintain economic growth and political stability

• To minimize social unrest and riots

• To reduce regional economic inequalities or imbalance

• To integrate minority races, e.g. China

Economic reasonsEconomic reasons

• To ensure overall economic well-being of the country

• To provide job opportunities• To stimulate economic growth• To achieve modernisation (e.g. in many LDCs)• To promote the growth of some particular industr

ies• To diversify economy• To fully utilize resources/factors of production• To raise productivity and increase the wealth of t

he country

Social reasonsSocial reasons

• To minimize social unrest

• To achieve regional economic balance

• To lessen social problems, e.g. massive internal migration, crimes, family problems, suicides, violence brought by unemployment and poverty

Environmental concernEnvironmental concern

• To reduce environment problems/pollution

• To disperse industries

• To discourage industrial concentration in urban areas

Government measuresGovernment measures

Infrastructure, transport & utilitiesInfrastructure, transport & utilities

Providing cheap and extensive landProviding cheap and extensive land

Jurong Industrial Estate, SingaporeJurong Industrial Estate, Singapore

Cambridge Science Park, UKCambridge Science Park, UK

Silicon Valley, South

California, USA

Silicon Valley, South

California, USA

M4 Corridor, UK

M4 Corridor, UK

Hsinchu Science-based Industrial ParkHsinchu Science-based Industrial Park

Policy makingPolicy making

• Slows down redundancy

• Reduce unemployment rates

• Encourage employers to take on unemployed workers

• Example: various employment programmes in HK

• Employment Services (Elementary Jobs)

• Employment Services (Skilled Jobs)

• Employment Programme for the Middle-aged

• Count On Talent Not Age in Employment

Establish new industriesEstablish new industries

• To provide regional development funding

• To save depressed areas

• To develop industries in new areas

• To raise production

Example 1: ChinaExample 1: China

• Planned economies

• The Chinese Government set up a large petroleum refinery and petrochemical works in Urumqi in 1950s – 1970s

• To achieve regional economic balance and industrial dispersion

Example 2: UK, FranceExample 2: UK, France

• Mixed economies

• To establish nationalized plants in depressed regions and rural areas

To attract foreign investmentTo attract foreign investment

• To offer favourable terms of trade

• To grant tax concessions (tax holidays, low rates on profit taxes)

• To grant industrial land at low prices

• To provide loans & subsidies

• To provide cheap land, factory buildings and workers

• To provide freight concessions

To protect home industriesTo protect home industries

• To impose tariffs and quotas on imported finished products

• Example: USA imposed tariffs on imported Japanese cars to protect the automobile industry

To adopt zoning policyTo adopt zoning policy

• Specify the siting of industries

• Examples: HK – the setting up of industrial estates

To set up training institutesTo set up training institutes

• To retrain workers

• To modernize firms/production

• To update technological advances

To impose controlTo impose control

• To reduce pollution and other environmental problems

• Air, water, noise pollution

• Traffic congestion

To adopt town planning measuresTo adopt town planning measures

• To limit the location of repulsive industries, e.g. leather tanning

• And environmentally dangerous industries, e.g. chemical works

• To encourage the development of cleaner industries

• To force the manufacturers to treat their sewage and waste products before disposal

To adopt strong central planningTo adopt strong central planning

• Common in socialist countries, e.g. China, Russia, Yugoslavia

• Direct government intervention

• Depends on top-level decisions

Demerits of too much interventionDemerits of too much intervention

• Excess subsides Low incentives to increase productivity

• Which may slow down industrial restructuring• Too much protection reduce imports higher

prices inflation• Penalties cost of production ↑• Sub-optimal location unprofitable/close down

of industries/wastage of resources• Complex bureaucratic barrier inefficient

management/low incentive to produce